The Shanghai Free Trade Zone: China’s Newest Vehicle to Attract Foreign Investors

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The Shanghai Free Trade Zone is clearly the hottest topic in China legal and business news at present. According to recent reports, more than 1,400 companies have registered in Shanghai’s free trade zone within two months of its launch.

The New Negative List

A “negative list” for foreign companies had been identified as one of the zone’s major innovations. The list specifies the sectors in which foreign investors may not invest. Theoretically, any other industry that is not mentioned in the Negative List is open to foreign investors.

Although the list in the Shanghai Free Trade Zone is similar to the general catalogue that applies in Mainland China, according to official reports of the leadership of Shanghai, it is anticipated that the Shanghai Free Trade Zone will relax the list and will open new industries to foreign investors.

Shorter Simplified Company Establishment Procedure

The Shanghai Free Trade Zone offers to foreign companies a simplified registration system to complete the registration formalities. For example, according to published reports, the Shanghai Free Trade Zone will have no minimum requirement of the registered capital; no requirement on the amount and percentage for payment of the first installment of the capital; no requirement on the percentage of the cash contribution; no deadline for the full payment of the capital, etc. Foreign companies will be able to obtain business licenses in four days compared to the previous prolonged procedures which took many weeks to complete.

The zone will also offer a simplified method to obtaining specific permits.  In contrast to prior practice, within the Shanghai Free Trade Zone enterprises will be allowed to apply first for a license, and therefore can apply to receive the specific industrial permit which was a major obstacle to foreign companies doing business in China.

The Shanghai Free Trade Zone is at the earliest stages of its operations. We will watch closely to see how the new policies are implemented.

Amit Ben-Yehoshua is a dual citizen of the United States and Israel and is licensed to practice law in California and Israel. Amit holds a Master Degree in Chinese law from Tsinghua University of Beijing and serves as a Senior Counsel at Da Cheng Law Offices, Asia’s largest law firm. Amit can be reached at amit.ben-yehoshua@dachenglaw.com.

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